Asian currencies dip on Fed move, yuan adjustment

Asian currencies had their steepest weekly loss in nine months after the US Federal Reserve increased its interest-rate forecast for next year and China doubled the yuan’s trading band.

The Fed, while indicating this week that the target rate would stay at zero to 0.25 percent this year, said it may reach 1 percent by the end of next year, higher than 0.75 percent predicted previously.

The yuan completed a record five-day drop, as China’s central bank cut the daily reference rate to the lowest since November, almost a week after it increased the maximum limit the currency can diverge from the fixing to 2 percent.

“The US rate outlook doesn’t look good for emerging-market currencies, including regional currencies,” said Saktiandi Supaat, Singapore-based head of forex research at Malayan Banking Bhd. “With the yuan band widening, the Chinese are trying to remove one-way appreciation bets to create flexibility in the currency.”

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, slid 0.7 percent from March 14 to 114.51 in Singapore, the biggest drop since June. The yuan fell 1.2 percent to 6.2250 per US dollar in Shanghai and reached 6.2370 on Friday, its lowest since February last year, China Foreign Exchange Trade System prices showed.

In Taipei, the New Taiwan dollar fell 0.88 percent to close at NT$30.652 against the US dollar this week, the lowest level in more than two years. Dealers said the local currency seemed to have entered a bear market and further decline is possible.

The NT dollar ranked the third weakest among Asian currencies this year, Bloomberg statistics showed. Since the start of the year, it has depreciated 2.29 percent against the US dollar, coming only behind the South Korean won’s 2.83 percent decline and the Chinese yuan’s 2.71 percent drop, the statistics showed.

The Philippine peso sank 1.5 percent to 45.31 per US dollar this week, while Malaysia’s ringgit fell 0.9 percent to 3.3085 and Indonesia’s rupiah lost 0.6 percent to 11,423. South Korea’s won weakened 0.7 percent to 1,080.4 and Thailand’s baht dropped 0.3 percent to 32.381. India’s rupee climbed 0.4 percent to 60.9250.

The US dollar also strengthened against the euro, snapping six weeks of declines against the euro-area currency, the longest losing streak in more than six years.

The Bloomberg Dollar Spot Index rose for the first week this month after the Fed shifted to more qualitative guidance and policymakers increased forecasts for borrowing-cost levels. The ruble fell for a fifth week as the US and the EU imposed sanctions on Russia in the standoff over Ukraine’s Crimea region.

The US dollar gained 0.9 percent to US$1.3794 per euro this week in New York, strengthening from a more than two-year low of US$1.3967 it reached on March 13. The euro gained for the previous six weeks, the longest stretch since July 2007. The US currency rose 0.9 percent to ￥102.25. Europe’s shared currency was little changed at ￥141.04.

The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 major counterparts, gained 0.6 percent to 1,019.26, its first weekly increase since Feb. 21 and its biggest since Jan. 17.

The pound had its biggest weekly drop in four months versus the US dollar as the Fed and the Bank of England gave divergent signals on the future path of interest rates, boosting the relative allure of the greenback.